What is the taxation on american 401k in Spain or Roth IRA in Spain?

When do I become a tax resident in Spain?

You are deemed a Spanish tax resident and are required to file a Spanish tax return if you spent 183 days or more of the calendar year there. In such case, what would then be the taxation on american 401 k in Spain?

The taxation on american 401 k in Spain

You must first determine whether your retirement plans are comparable to Spanish pension schemes in order to establish your tax liability. In your situation, those taxes will be determined by that.

According to what we understand, a 401-K can be compared to a pension plan in Spain. These plans are linked to employment and are only available if specific conditions are satisfied. Therefore, they would be required to fulfill the following duties:

  • During the course of the year, distributions will be regarded as general income and will be subject to income tax (impuesto sobre la renta) at the appropriate progressive rate. Presently at 47%.
  • Your balance in a 401K account, however, does not have to be revealed as an asset on the informative 720 form because they are equal to pension plans, nor will they be subject to Spain’s wealth tax (impuesto sobre el patrimonio.) Additionally, it won’t be impacted by the reporting requirements of either the General Directorate of Foreign Trade (Dirección General de Comercio Exterior) or the Bank of Spain (Banco de España).

Roth ira tax implications in Spain

Traditional IRAs or equivalent plans would be treated the same way, but not Roth IRAs, since these are not considered equivalent to a pension plan. 

A Roth IRA would be taxed as follows:

  • The yields, interest, dividends, profits, or other comparable income received from the investments within the Roth IRA account will be subject to Spanish income tax (impuesto sobre la renta). often up to 26% on a progressive scale.
  • The informative 720 form would also need a declaration of the account’s investment value. Any changes in value or sales of assets must be recorded annually. The value will be taken as of December 31 of the applicable tax year.
  • The investments will also be subject to Spanish wealth tax based on their value as of December 31. (Impuesto sobre el Patrimonio). Depending on the Spanish autonomous community, the rate of this wealth tax varies considerably.
  • The General Directorate of Foreign Trade (Dirección General de Comercio Exterior) or the Bank of Spain (Banco de España) may require reporting for informative purposes.

This article is no financial nor tax advice. Do you need professional help or advice from expert international tax advisorsRequest a consultation here